A key part of being in business is managing risk and protecting your business interests. When it comes to your employees, one of the key ways to do this is through well drafted employment contracts.

All too often clients approach us where a former employee has brought a claim against the business. A common feature in such situations are poorly drafted employment contracts (or no contracts at all).

We also regularly advise in situations where a former employee has undertaken actions causing serious injury to the business, such as soliciting valuable clients post-employment. Where there are no express contractual obligations restraining the employee from taking these actions, it becomes legally difficult to provide an effective solution.

Here are our top 5 reasons why your business should have adequate employment contracts.

 1. Preventing a successful reasonable notice claim

A common weakness we see in employment contracts is the failure to specify a period of notice

by which the employer can end the employment relationship. In these situations, an employee can bring a claim for reasonable notice. 

Alternatively, some contracts refer to the notice provisions set out in section 117(3) of the Fair Work Act 2009 (Cth) (“FW Act”). Such contract terms may be insufficient to avoid a successful claim for reasonable notice.  This is because the FW Act only provides for a minimum period of notice. 

Where the contract is silent on the issue of notice, or has deficiencies by referring to the minimum notice periods in the FW Act, an employee whose employment has ended can bring a claim for reasonable notice at common law. 

This is because reasonable notice will be implied by law into employment contracts which do not have an express term dealing with notice.

Depending on factors such as the employee’s seniority and length of service, a Court may consider that up to 12 months’ notice is reasonable. If this is the case, then the business must pay damages equivalent to the employee’s salary for that notice period.

The cases show that the simple omission of a correctly drafted notice term can be costly.

 2. Protecting your clients through post-employment restraints

The capacity to retain existing clients is often crucial for a business’s survival. It is therefore important that businesses take proactive steps to protect their interests in this regard.

One of the best ways to reduce the risk of ex-employees taking your clients is to include post-employment restraints in an employment contract. Types of post-employment restraints include:

• non-compete;
• restraint on the provision of services to clients;
• non-solicitation of clients; and
• non-solicitation of employees and/or contractors.

However, enforcing post-employment restraints against ex-employees is often difficult. 

This is particularly so if there are weaknesses in the wording of the restraints.

It is therefore crucial to get the drafting right. Well-drafted post-employment restraints may be a business’s last line of defence in preventing ex-employees from poaching valuable clients.

3. Avoiding an underpayment claim for failing to address Award annual salary provisions

Employers often choose to pay employees an all-inclusive annual salary.

Certain Awards contain specific annual salary provisions, for example, the Clerks – Private Sector Award 2010. Such annual salary provisions provide a mechanism for an employer to pay an annual salary which covers Award entitlements such as minimum wages, overtime, penalty rates and annual leave loading.

However, failure to specifically address annual salary provisions in an employment contract may be problematic.

In Simone Jade Stewart v Next Residential Pty Ltd